416-364-9366 bob@aaron.ca

Builder bankruptcy reveals warranty shortcomings

Jun 18, 2016 | 2016 Toronto Star Property Law Columns

By Bob Aaron
Toronto Star contributing columnist

Bob Aaron bob@aaron.ca

Tarion warranties need to be improved, and a forthcoming report on improving consumer protections should address delayed occupancy compensation

The recent insolvency of the Urbancorp builder group, and its impact on hundreds of would-be home buyers who wanted to complete their sales deal, has highlighted some gaps in the Tarion warranty coverage available to Ontario consumers.

Tarion recommended that homebuyers in Urbancorp projects “should retain legal counsel so that they are aware of all of their legal options.” It’s a sad situation when the warranty program will not stand behind the Urbancorp buyers but instead urges them to get involved in the delay, expense and frustration of the court system.

Last fall the Ontario government appointed retired associate chief justice J. Douglas Cunningham as a special adviser “to review protections for owners of new homes and identify opportunities to improve consumer protection measures.”

This past April and May, the Cunningham inquiry conducted a series of invitation-only focus groups. These groups were termed “industry consultation sessions.”

As well, two sets of industry and public sessions were held in nine cities around the province. Unfortunately, they were not well publicized and not all stakeholders were made aware of the opportunity to make presentations.

In December, Toronto real estate lawyer Mark Morris wrote Cunningham, asking to make a presentation about Tarion shortcomings. He was advised “we will be in touch with you once we have our schedule in place.”

In March, he asked again and received no response. Finally, last week he was told that the industry consultations have been concluded although email input is still welcome.

The plan is to release an interim report early in summer. It will be posted on the website for the Ministry of Government and Consumer Services, and the public will have an opportunity to comment in writing before the final report is released next fall.

Here are a few recommendations I hope will make their way into the Cunningham report:

  • Tarion currently protects deposits up to $20,000 on condominiums and $40,000 on homes. This protection hasn’t been changed in years, while home prices and deposit amounts have skyrocketed. Deposit amounts should be protected by Tarion up to $200,000 on all purchases, whether freehold or condominium.
  • Last week I closed transactions for clients where the agreements were signed nine years ago, back in 2007. At present, delayed occupancy compensation is $150 per day up to a maximum of $7,500. In order to encourage more realistic builder disclosure of possible delays and accurately reflect the cost of delays to purchasers, compensation should be doubled to $300 a day, with no maximum, and no ability to contract out of entitlement.
  • When a builder files for insolvency or bankruptcy, purchaser contracts may often be cancelled by the mortgage lenders or another builder who takes over construction at the site. The obligation to comply with the existing purchase agreements should be given to the new group responsible.
  • Floor plans with measurements of unit square footage and room sizes must be attached to all purchase agreements.
  • The first page of all purchase agreements should contain a clear statement of the maximum amount of all extra charges hidden in the paperwork.
  • Builders should be prohibited from charging huge fees to consent to assignments of purchase agreements. And they should be required to report assignment agreements to Canada Revenue Agency so it can track profits which are frequently undeclared.


Contact Bob Aaron

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

Aaron & Aaron specialize in Real Estate Law, specifically Sale of Rental, Condominium, Residential, Rural Recreation, Offer to Lease, Commercial, and New Construction

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